risk

How to Write a Risk Statement

"If <RISK EVENT> happens, then <CONSEQUENCE>, which will <IMPACT> the <PROJECT OBJECTIVE>."

these are estimated and made part of the project budget, not the baseline.

Allowances

What are five risk identification tools and techniques that construction managers use?

Brainstorming, nominal, assumption, Crawford, checklists, root cause, influence.

Inaccurate contract time estimates Unclear contract documents

Construction Risks

used for planning of individual risks instead of planning for the whole project

Decision Tree

Cost escalations

Economic Risk

Changing the plan to eliminate a risk by preventing the cause/source of risk

Prevention

Risk management is

continuous

How to Write a Risk Statement Longer version

"If <RISK EVENT> happens, then <CONSEQUENCE>, which will affect/impact <WHOM>, causing a/an <IMPACT> to <PROJECT OBJECTIVE>."

A hospital project in San Diego, CA will be installing an intricate glass curtain wall as the signature aesthetics for a building. There is a 30% chance that the curtain wall construction (which are all critical path activities) will experience difficulties in assembling the curtain wall. This may result in additional labor and time to complete the work. If it is possible that the additional work will cost $70,000 more and will take an additional 10 working days, what contingency could be added to the budget and schedule to account for this uncertainty?

$21,000 / 3 days

Formal/structured risk management helps to:

- Better understand possible project outcomes - Control project outcomes

Uncertainty involves

- Frequency of occurrence - Severity of the occurrence - Outcomes that can occur within a range

Tools for managing risks

- Risk management - Insurance - Bonding - Transfer (contract) - Safety program/culture -Quality management - Contingency

Work performance information

-Deliverable status - Schedule progress - Costs incurred

how to adequately describe each risk issue:

-Nature of the issue/event - Possible causes and thus likelihood - Possible impacts - Any relationships with other issues

Inputs to Monitor & Control Risk

1 Performance reports 2 Risk management plan 3 Risk register 4 Approved change requests 5 Work performance information

Risk Management Guidelines

1. Explain the overall organizational context, importance of risk management, and risk framework to project participants 2. Follow a consistent and proactive process for managing risk 3. Utilize standard risk terminology, tools, and methods 4. Implement appropriate risk identification techniques 5. Apply tools and techniques to assess and analyze risks and impacts 6. Implement appropriate methods of documentation 7. Describe possible "risk responses" and illustrate how to respond effectively to realized risks 8. Describe risk allocation options 9. Develop risk monitoring and control plans

Risk Identification Guidelines

1. Identify as many risk events as possible, given the time you have 2. Determine what major risk events the program or project faces 3. Make each risk event specific and fully defined 4. Use scope statements, work breakdown structures (WBS), past projects, constraints, assumptions, and expectations as inputs 5. Use your project team 6. Do not analyze risk events yet • That is done in the risk assessment step

Decrease up to __ of project problems, provides ____ of project cost savings

90%, 5%

-Develop a contingency plan to execute if the risk occurs - Contingency plan = be ready with Plan B - Fall back plan = plan C if B fails

Active acceptance

Unrealistically low bid - Missing costly items in a bid

Bidding risk

Chance for profit or loss

Business Risk

General Risks

Business Risk Insurable (Pure) Risk Internal Risk External Risk Technical Legal

Risks are expected to happen during a particular phase of the project. When that phase has passed and the risk is no longer probable, the risk should be removed from the risk list and any reserve associated should be freed up.

Closing of risks

Risk management is not:

Completing a list - Running a "Monte Carlo simulation" - Ponderous and expensive -Only appropriate to large projects - A process that drives a project to "bankruptcy"

Supplier does not deliver material on time - Performing work that a company is not qualified to do - Improper means and methods - Site conditions

Construction‐related risk

covers the cost for 'known unknowns' discovered during risk management; covers the residual risks.

Contingency

plans of action in case the risk does occur

Contingency Plans

Contract allocates risk to party that cannot control it

Contract and legal risk

"Should we bid a project that has high levels of uncertainty in the site conditions?"

Decision analysis

Deciding upon a course of action in the face of risk

Decision analysis

Pressure to accelerate schedule Constructability of design issues

Design Risks

- Constructability issues - Errors and omissions - Inadequate engineering

Design risk

Risk Identification Tools

Documentation review - Brainstorming -Nominal group technique - Assumption analysis - Crawford slip - Checklist analysis - Root cause analysis - Influence diagrams

Non-defined hazardous waste Environmental regulation changes

Environmental Risks

Risk Checklist

Environmental Risks External Risks Third-Party Risks Geotechnical and Site Risks Right-of-Way/Real Estate Risks Design Risks Organizational Risks

Accidents, damage, maintenance

Equipment risk

Probability of event times the Impact of the event

Expected Value

Risk that may affect the project but is outside the control of the project manager

External Risk

Stakeholders request late changes Intergovernmental agreement changes

External Risks

a secondary contingency plan, in case the contingency plan does not work or is not effective

Fallback Plans

The project will not perform or function as it was intended

Functionality

Unexpected geotechnical issues Surveys late and/or in error

Geotechnical and Site Risks

Chance for loss only (e.g., fire, theft, personal injury)

Insurable (Pure) Risk

Risk that may affect the project and is in control of the project manager

Internal Risk

Risk Management Facts

Is a very proactive task - Allows the project manager to be in control -Has been shown by studies to

Availability - Productivity - Strikes / Labor disputes

Labor risk

Licenses, patent rights, lawsuits, contractual failure, default

Legal

Seeks to reduce the impact or probability of the risk event to an acceptable threshold

Mitigation

A technique that uses simulation to show the probability of completing your project on time and within budget.

Monte Carlo Analysis

- Assignment of inexperienced staff - Loss of critical staff

Organizational Risks

-Deal with the risks as they occur = Workarounds -Usually for low ranked risks

Passive acceptance

- Disapproval of the project - Political push to build the project

Political and public risk

is actively managing risks on your project

Project risk management

has the contingency and allowances kept up with changes to the risk list? Does the contingency and allowances still cover the costs of these risks should they occur?

Reserve analysis

risks that are left over after Plan Risk Response

Residual Risks

Railroad objections Excessive relocation or demolition

Right-of-Way/Real Estate Risks

Events that might occur, which could change project cost, schedule, quality, or functionality

Risk Identification

Identify, categorize, and document all risks (and opportunities) that could affect project

Risk Identification

Risk management is iterative, you should review the risks on your project throughout the project to update their qualitative and quantitative values.

Risk Reassessment

All identified risks are to be entered into the project

Risk Register

comprehensive and non‐ overlapping list of risks

Risk Register

the person on the team responsible for monitoring the risk, risk triggers, developing a response strategy, and implementing the strategy should the risk occur

Risk Response Owners

Consist of a defined event and its impact

Risk Statements

early warning signs that there is a high probability the risk will occur

Risk Triggers

"How much with this project actually cost?"

Risk analysis

Predicting the effects of risky events on an outcome of interest

Risk analysis

a team of experienced project team members reviews the risk management process and response strategies to see if you've effectively identified the major risks on the project and developed effective strategies for dealing with them.

Risk audit

Reorganizing any identified risks by their root cause

Root Cause Analysis

new risks that result from the implementation of the contingency plans for the primary risks

Secondary Risks

- Impact (or outcome) is typically referred to as

Severity

should be used to identify new risks or changes to existing risks. This is a great opportunity to discuss with your team and stakeholders existing risks and new risks.

Status meetings

risk management process steps

Step 1 - Risk Identification Analyze the project to identify sources of risk Step 2 - Risk Assessment Assess risk in terms of: • Chance of occurring • Severity • Controllability Step 3 - Risk Response Development • Develop a strategy to reduce the possible impact • Develop contingency plans Step 4 - Risk Response Control • Implement risk strategy • Monitor and adjust plan for new risks • Change management

- Unreliable/underperformance - Lack capacity to do work - Lack availability to do work - Financially unstable

Subcontractor‐related risk

Changes in technology, design issues, O&M issues

Technical

In a work in progress report, what does Billed to Date mean?

The actual billings that reflect company accounting records

Locate unexpected utilities Utility cost sharing problems

Third-Party Risks

Shift responsibility of risk consequence to another party

Transfer

- Rain, wind, cold, heat, snow - Major weather events

Weather

a response to a risk that has occurred when no contingency plan exists.

Workaround

A negative effect is a

a threat

A positive effect is

an opportunity

The project will cost more than budgeted or the final product is worth less than what it cost to construct

cost

Construction Performance Risk Categories

cost quality safety time Functionality

t/f Brainstorming is a tool used to identify and assess project risks

false

t/f Risk management is a process of reactively dealing with problems once they arise

false

unit risk equals

frequency x severity

Monitor and Control Risk is The process of

implementing risk response plans - tracking identified risks -monitoring residual risks - identifying new risks evaluating risk process effectiveness throughout the project

For risk statements, Enhance the next step of analyzing

likelihood and impact

Represent ..... risk event

one

• A risk is ............... that results in an .................. that is different from what is planned.

potential event ; outcome

Risk is a measure of

probability and magnitude of achieving or not achieving a defined project goal

The project will have poor‐quality materials or workmanship or the work will be incomplete

quality

The project does not have or does not enforce the project safety plan, or the project potentially puts workers and the public in danger

safety

Risks are best assumed by the party with

the greatest ability to control the risk

The project will not be completed during the scheduled time period

time

t/f Brainstorming is a tool used to identify potential project risks as well as generating value engineering ideas

true

t/f CPA's and sureties state that underbilling is never a good thing for a construction company.

true

A risk is an ................... that could have a ................ on your project

uncertain event ; positive or negative effect

is simply the set of all potential outcomes, both favorable and unfavorable, within each known risk

uncertainty